Trust as Beneficairy on IRA

Submitted by MIKE KRUCHTEN on Wed, 2016-09-07 18:54

In reading thru many past posts in regards to an IRA having the owners Trust as a beneficiary I have seen posts advising the Trust have the proper language to allow the beneficiaries (assuming the Trust is Qualified) to elect to stretch their portion. I manage numerous IRA’s with the owner’s Trust either primary or contingent beneficiary and the estate planning attorney I work with has placed the following language within the Trustee Powers section of Trust “In the event that I own any qualified accounts (401k, IRA, etc.) upon my death, and further in the event that I have designated this Trust as the death beneficiary of said qualified account[s] then in that event I hereby vest in my trustee the authority to elect to distribute said benefits or “stretch” (life expectancy payout method) the minimum required distribution of any said qualified account[s]”. I have had numerous IRA clients pass with their Trust as sole beneficiary and the Custodian (LPL Financial or American Funds) claim paperwork allows the Bene IRA to be opened under the name of the decedent, for the benefit of beneficiary. Neither require any language in Trust to facilitate this request, they only need copy of Trust to verify current trustee and named beneficiaries. Thou each bene will have their own Bene IRA and not titled under the Trust they still must use oldest bene’s DOB for RMD purposes. I’m confused about what language I’m missing such as allowing sub trusts to be created. Maybe this will allow each bene to use their own DOB for RMD purposes but I have seen many PL rulings conflict if this is indeed possible. Any suggestions on language or a clarification on my thought process would be appreciated. I’m just wondering if any language should be in Trust regarding ability to stretch since all Custodian’s I have worked with simply need to know if Trust is Qualified and rely on Trustee to provide beneficiary information.



Submitted by Bruce Steiner on Wed, 2016-09-07 19:01

  • What do you mean by the “owner’s trust” being a beneficiary of an IRA.  A trust for the benefit of the IRA owner can’t be a beneficiary of an IRA since the IRA owner will be dead when the beneficiary designation takes effect.
  • If IRA benefits are payable to a trust, the trustees have the authority to take distributions however they want.  The tax consequences are between the trust and the IRS.  If the trustees do something unreasonable or inappropriate, the beneficiaries may have a claim against the trustees.
  • There are some special provisions needed in order for the trustees to be able to stretch the distributions over the life expectancy of the oldest beneficiary of the trust (without incurring any penalties for failing to take required distributions).  See my article on this subject in the March 2004 issue of BNA Tax Management’s Estates, Gifts & Trusts Journal:  http://kkwc.com/wp-content/uploads/2015/04/AR20041209132954.pdf.


Submitted by MIKE KRUCHTEN on Wed, 2016-09-07 21:16

If I own my Roth IRA and elect to name my Trust as sole beneficiary is my meaning of “owner’s trust”.



Submitted by Bruce Steiner on Wed, 2016-09-07 22:29

What is “my trust”?  You’ll be dead when your beneficiary designation takes effective.  You can’t be a beneficiary of a trust after your death.  You could name a marital trust for your spouse, a credit shelter trust, trusts for your children, etc., as beneficiaries.  But it wouldn’t make sense for you to name a trust for your own benefit as the beneficiary of your IRA.



Submitted by MIKE KRUCHTEN on Thu, 2016-09-08 12:00

My revocable living trust is beneficiary. Of course when I die the listed bene’s within document will received their specified %. But since my experience with custodians has allowed the trust to be looked thru the named bene’s within trust document now own the Bene IRA vs. Trust. This is my rationale for inquiring about specific language within Trust that seems not to be required for look thru to occur. Maybe certain custodians require???



Submitted by Bruce Steiner on Fri, 2016-09-09 18:17

  • If the beneficiaries of your revocable trust will take outright, you could name them as the beneficiaries of your IRA, so as to avoid the complexity of running your IRA through your revocable trust.
  • If the beneficiaries of your revocable trust will take in further trust, you could name their trusts as the beneficiaries of your IRA, so as to avoid the complexity of having to divide the inherited IRA, as well as to avoid the other pitfalls of running an IRA through a revocable trust.


Submitted by David Mertz on Fri, 2016-09-09 19:16

Is there ever any benefit to listing a revocable living trust as the beneficiary of an IRA?



Submitted by Bruce Steiner on Fri, 2016-09-09 21:52

  • First of all, while revocable trusts make sense in some cases, and in some states, they’re overhyped and oversold, and in most cases, in most states, aren’t necessary.  We do them if there’s a particular reason to do so in a given case, but not otherwise.
  • Occasionally a plan won’t allow a beneficiary designation naming more than one trust.  In those cases, we’ll sometimes create a trust to be the beneficiary, and then have the trust divide after the client’s death.  When the client dies, the trustee can transfer the plan benefits into an inherited IRA, and can then divide the inherited IRA into separate trusts for the different beneficiaries.  However, this is unusual.


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